Question 2 (a) Narrate the pros and cons of two methods of cost of equity estimation (Dividend Growth Model (DGM) and SML) and the challenges of applying each method in reality. (10 marks) Determine the circumstances where it is inappropriate for a firm to use WACC as the hurdle rate for all its division. What problems might you encounter in estimating the cost of capital for a division and what techniques you could use to solve? (10 marks) (b) (c) For each of the following scenarios, discuss whether profit opportunities exist from trading in the stock of the firm under the conditions that (1) the market is not weak form efficient, (2) the market is weak form but not semi-strong form efficient, (3) the market is semi-strong form but not strong form efficient, and (4) the market is strong form efficient (i) The stock price has risen steadily each day for the past 30 days. SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 3 of 4 FIN203 Group-based Assignment (ii) The financial statements for the company were released three days ago and you believe you have uncovered some anomalies in the company's inventory and cost control reporting techniques that are causing the firm's true liquidity strength to be understated. (iii) You observe that the senior management of a company has been buying a lot of the company's stock on the open market over the past week. (Word Limit - 500 words. Penalty applies if exceeded)